7 Disguised urban unemployment and welfare in a general equilibrium model with segmented labour markets

The theory of segmented labour markets (SLMs) has been used recently to analyse problems in labour economics and macroeconomics. In the latter field it has been used to examine the impact of the business cycle on employment and wages. The SLM approach is also useful in explaining the absence of male-female substitution in response to equal pay legislation ¹ and some of the stylized facts of the US economy. The theory of SLMs provides an alternative approach to studying problems of the type raised by Harris and Todaro (1970). We have already described a generalized version of the Harris-Todaro (HT) model in Chapter 3 and in this chapter we present the theory of SLMs with extensions into a general equilibrium setting which provides an alternative model for analysing unemployment and migration.